B&G Foods, Inc. — Q1 2021 Form 10-Q
Reporting period: Thirteen weeks ended April 3, 2021; filed May 11, 2021. B&G Foods manufactures and distributes branded shelf-stable and frozen foods. Comparisons are with the thirteen weeks ended March 28, 2020, except balance-sheet comparisons, which are with January 2, 2021. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $505.1 million | $449.4 million | Up 12.4% |
| Gross profit / margin | $117.8 million / 23.3% | $104.9 million / 23.3% | Profit up $12.9 million; margin unchanged |
| Operating income / margin | $62.0 million / 12.3% | $60.2 million / 13.4% | Income up 2.9%; margin down 1.1 points |
| Net income / diluted EPS | $26.9 million / $0.41 | $28.1 million / $0.44 | Down 4.3%; EPS down $0.03 |
| Operating cash flow | $26.0 million | $57.6 million | Down $31.6 million |
| Capital expenditures paid in cash | $11.8 million | $6.1 million | Up $5.6 million |
- Sales composition: Crisco, acquired in December 2020, contributed $58.1 million. Excluding acquisitions and divested brands, base business sales decreased 0.6% to $446.9 million; lower volume of $9.8 million was partly offset by pricing and mix of $6.6 million and favorable foreign currency of $0.7 million.
- Cash flow: The company attributed the decline in operating cash flow primarily to the timing of a $23.6 million semiannual interest payment and $12.6 million more cash incentive compensation. Cash also reflected a $40.1 million use from accrued expenses and a $4.3 million use from inventories and receivables combined.
- Balance sheet and debt: At April 3, cash was $43.1 million, current assets $729.4 million and current liabilities $207.6 million. Long-term debt, net, was $2.330 billion; debt less cash was $2.287 billion. Available revolving-credit capacity, net of letters of credit, was $565.6 million. Debt included $900 million of 5.25% notes due 2025, $550 million of 5.25% notes due 2027, $671.6 million of term loans due 2026 and $230 million drawn on the revolver. The company reported compliance with debt covenants.
- Dividends: The declared quarterly dividend was $0.475 per share. The company paid $30.5 million in dividends while generating $26.0 million of operating cash flow. Management estimated fiscal 2021 dividends of approximately $123 million at the then-current rate and share count.
Material changes and notable items
- Reported sales growth was driven by Crisco; base business sales were slightly lower year over year. Crisco also contributed to higher amortization, interest expense and warehousing costs.
- Green Giant sales declined 16.4% overall, including declines of 32.6% in shelf-stable products and 8.8% in frozen products. The company cited comparison with unusually strong pandemic-period demand and supply constraints; certain products were allocated to customers.
- Spices and seasonings sales increased $24.6 million, or 47.5%, on a base-business basis. The filing also reported gains for Dash and Maple Grove Farms.
- SG&A rose 26.0% to $50.4 million, including higher warehousing, consumer marketing and acquisition-related costs. Net interest expense increased 3.6% to $27.0 million, principally due to higher average debt associated with Crisco financing.
- Q1 2021 included $5.1 million of acquisition-related inventory step-up amortization and $2.9 million of COVID-related costs. Adjusted EBITDA was $92.9 million, versus $80.7 million; adjusted net income was $34.1 million, versus $29.2 million. These are non-GAAP measures and include specified adjustments.
- The effective tax rate was 25.5%, compared with 18.9%; the prior-year period included a $2.3 million tax benefit associated with the CARES Act. The filing recorded $4.2 million of separation costs for the former CEO in Q4 2020; related cash payments continued in Q1 2021.
Outlook, risks and contingencies
- Management expected strong demand and fiscal 2021 base-business sales to remain above fiscal 2019 levels, while cautioning that base-business sales could decline year over year in Q2 due to pandemic-related pantry loading in the prior-year comparison. The filing does not provide a clear numerical full-year sales or earnings guidance range.
- Management expected input-cost inflation, including ingredients, packaging and transportation, and elevated freight rates in 2021. It anticipated higher raw-material cost increases for the remainder of fiscal 2021 and cited pricing and cost-saving initiatives as mitigation, without assurance they would fully offset inflation.
- Green Giant supply constraints were expected to continue until the new pack season, limiting sales into Q3 2021. The company cited broader risks from COVID-19, supply-chain disruption, changing consumer demand, competition, foreign exchange, and its substantial leverage.
- Management expected approximately $50 million of fiscal 2021 capital expenditures. It stated cash, operating cash flow and revolver availability should be sufficient for foreseeable needs, including debt service, capital spending and anticipated dividends; this assessment depends on operating results and financing access.
- The multi-employer pension plan remained in critical and declining status. A withdrawal or substantial reduction in participation could trigger material withdrawal liability. The company expected about $5.5 million of contributions to its company-sponsored plans and about $0.5 million of additional multi-employer contributions plus $0.3 million of surcharges for the rest of fiscal 2021.
- The company said pending ordinary-course legal matters were not expected to have a material adverse effect. It reported no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether base-business demand and sales trends normalize as pandemic comparisons ease, and whether Green Giant supply restrictions lift as expected.
- Whether pricing, cost savings and supply contracts offset rising commodity, packaging and freight costs without harming volumes or margins.
- Cash generation relative to debt service, capital needs and the stated dividend; note that quarterly dividends paid exceeded operating cash flow in Q1.
- Debt levels, borrowing costs, covenant headroom and the company’s ability to refinance or access credit markets.
- Final Crisco purchase-price allocation and integration progress, including realization of expected benefits and any resulting costs.
- Developments in the underfunded multi-employer pension plan and any changes in potential withdrawal exposure.